Sept. 17 (Bloomberg) -- NYSE Euronext, the biggest U.S.
exchange operator, will pay $5 million to resolve regulatory
claims that the New York Stock Exchange violated rules by giving
certain customers a head start on trading information.

The NYSE sent data through two proprietary feeds to paying
customers before relaying the information to the so-called
consolidated feed, which distributes trade and quote data to the
public, the Securities and Exchange Commission said in an
administrative order filed Sept. 14. Investigators are
conducting similar reviews of other exchanges, according to two
people with knowledge of the probes, which aren’t public.

The SEC penalty, the first of its kind against an exchange,
comes as lawmakers and regulators question whether retail
investors are being harmed in an increasingly fragmented
marketplace of high-speed, computer-driven trading. NYSE’s
practice was discovered in the SEC’s investigation of the so-called flash crash of May 2010, in which $862 billion was erased
from equity prices in 20 minutes before recovering.

The practice violated Regulation NMS, which obliges
exchanges to give the public fair access to market information,
the SEC said. The NYSE violated SEC rules “over an extended
period of time” starting in 2008 by failing to monitor the
speed of its proprietary feeds compared to the consolidated
feed, the agency said in its order.

The violations stemmed from technology issues in NYSE’s
Open Book Ultra and PDP Quotes proprietary data feeds, according
to the SEC.

“The timing differentials stemmed from technology issues,
not from intentional wrongdoing by the exchange or any of its
personnel,” NYSE Euronext Chief Executive Officer Duncan
Niederauer said in a statement. The company, which operates
exchanges in the U.S. and Europe, will “ensure that our market
operates with the utmost fairness and transparency,” he said.

While the SEC has previously faulted exchanges for
misconduct by employees, the Sept. 14 action marks the first
time the agency has fined an exchange for having faulty systems
that violated securities rules.

The SEC action follows the Nasdaq Stock Market’s flubbed
initial public offering of Facebook Inc. in May and Bats Global
Markets Inc.’s withdrawal of its IPO after a technology glitch
in March, both of which undercut investor confidence that
exchanges are in command of their technology systems. The agency
is considering a new rule to mandate that exchanges and possibly
brokers employ adequate automated systems to operate their
markets and related platforms, according to Dave Shillman, an
executive in the SEC’s trading and markets division.

The SEC penalty, the first of its kind against an exchange,
comes as lawmakers and regulators question whether retail
investors are being harmed in an increasingly fragmented
marketplace of high-speed, computer-driven trading. The NYSE’s
practice was discovered in the SEC’s investigation of the so-called flash crash of May 2010, in which $862 billion was erased
from equity prices in 20 minutes before recovering.

For more, click here.

Compliance Policy

SEC May Apply New Automation Rule to Brokers, Shillman Says

The U.S. Securities and Exchange Commission may include
large brokers and dark pools in a planned rule aimed at ensuring
that regulated securities markets have adequate technology
systems, an SEC official said.

The SEC is working to turn policies on how exchanges manage
their automated systems into regulations in the wake of a $440
million Knight Capital Group Inc. trading loss triggered by a
software malfunction last month.

The commission’s so-called automation review policy program
was established after the 1987 market crash to ensure exchanges
and clearing agencies have the capacity to handle sudden surges
in trading. The initiative evolved to encompass the security of
automated systems and make sure the technology wouldn’t fail
during or after a crisis, according to David Shillman, associate
director in the SEC’s division of trading and markets.

The aim now is “to codify that,” and make the standards
clearer, Shillman said Sept. 13 at a conference in New York
sponsored by the Futures Industry Association and Options
Industry Council. Minimum standards for automated systems, which
currently cover exchanges and clearinghouses, “could be applied
to other market participants” including brokers and dark pools,
he said.

Shillman said he expects the automation review policy, or
ARP, program to be discussed during a roundtable meeting about
technology the SEC is holding in Washington on Oct. 2.

SEC Chairman Mary Schapiro said in a March 2011 speech that
compliance with the ARP guidelines should be made mandatory.

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Investment Advisers Face Tougher Bonus Rules From EU Regulator

Companies that advise retail consumers on their investments
face tougher bonus rules from the European Union’s top markets
regulator.

Bonuses for salespeople should “reflect the fair treatment
of clients” to reduce incentives for poor sales practices, the
European Securities and Markets Authority said in a consultation
paper on its website today. Firms should include factors such as
“compliance with regulatory requirements” when calculating
variable bonuses for staff, ESMA said.

Payouts for managers at financial firms have been under
scrutiny from regulators and lawmakers since the fall of Lehman
Brothers Holdings Inc. in 2008.

Special Section: Cyprus Talks

EU Ministers Postpone Talks on Liikanen Bank Structure Group

European Union finance ministers postponed a discussion on
possible bank structure rules until next month after separate
talks on supervision of lenders overran their time.

Ministers are now set to discuss the matter at their next
meeting in October, Michel Barnier, the EU’s financial services
chief, told reporters after a meeting in Nicosia, Cyprus, on
Sept. 15.

Barnier has asked Bank of Finland Governor Erkki Liikanen
to lead a high-level group that will propose options for better
separation of retail banking and other investment activities.
While the group is scheduled to deliver its report on Oct. 2,
Cyprus, which holds the rotating presidency of the EU, had
called for a preliminary discussion Sept. 15 in Cyprus.

Europe Bides Time on Spain, Relies on ECB to Soothe Markets

European governments put off decisions on aid for Spain and
a loosening of Greece’s loan terms, counting on the European
Central Bank’s bond-buying pledges to provide interim relief
from market turmoil.

Finance ministers meeting in Cyprus last week pressed for a
fresh set of reforms to rebuild confidence in Spain’s economic
management and said the fate of Greece’s 240 billion-euro ($315
billion) rescue program won’t be decided until late October,
possibly at a crisis summit of leaders.

The central bank, which helped drive the euro to a four-month high by stepping up rhetoric to fight Europe’s debt
turmoil, warned that it has only bought time for governments to
deliver the deficit-cutting and growth-boosting steps needed to
stabilize the economy.

Finance ministers will inaugurate the European Stability
Mechanism on Oct. 8 and pay in the first two equity installments
of 32 billion euros by the end of October, making the fund
“fully operational,” Luxembourg Prime Minister Jean-Claude
Juncker said after chairing the meeting on Sept. 14.

European officials said Spain will unveil new reforms by
the end of the month based on recommendations made in July that
cover areas such as a possible increase in the retirement age, a
shift from labor to consumption taxes and the deregulation of
closed professions.

Spain, already drawing on 100 billion euros to repair its
banking system, wants the lightest possible conditions on a
European credit line or loan program that would also enable the
ECB to buy bonds to bring down its borrowing costs.

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Schaeuble Says EU Bank Oversight Plan Risks Backlash

German Finance Minister Wolfgang Schaeuble said the
European Union risks a backlash from financial markets if it
takes longer than expected to set up a common bank supervisor
for the 17-nation euro area.

The European Central Bank is due to take on bank oversight
duties next year under proposals from the European Commission,
the EU’s regulatory arm. EU leaders called for a single bank
supervisor in June as a condition of allowing euro-area banks
direct access to the region’s firewall funds.

“My concern is always that there is the risk to raise
expectations with financial-market participants that can’t be
fulfilled later,” Schaeuble told reporters Sept. 14 on his way
into a meeting of European finance chiefs in Nicosia, Cyprus.
“I don’t see the possibility of a direct bank capitalization
from the European Stability Mechanism as of January 1.”

Germany has broadly backed the banking union plans, while
emphasizing the need for national regulators to monitor most of
the euro area’s more than 6,000 banks. The U.K. has voiced
concerns that it and other non-euro nations might be drowned out
of financial rulemaking if the plan goes through as offered.

Schaeuble’s call for careful deliberations, along with
strong conditions for countries whose banks receive aid,
contrasted with France’s plea for speed. French Finance Minister
Pierre Moscovici said EU leaders agreed to the clear aim of a
rapid setup.

For more, click here and click here, and click here.

Asmussen Says There Is No Time to Rest on Reform in Europe

European Central Bank Executive Board member Joerg Asmussen
urged euro-area governments not to use the recent respite in
financial markets as a reason to relax their growth-boosting
efforts.

“I want to stress there is no time to rest,” he told a
news conference in Cyprus following a meeting of European
finance chiefs. “It is up first and foremost for governments to
do their homework at the national level and the EU level.”

For the video, click here.

Frieden Warns of Crisis Return If EU Reform Drive Is Relaxed

Luxembourg Finance Minister Luc Frieden urged euro-area
governments not to put off the steps needed to spur their
economies and rebuild the confidence of investors.

Market turmoil could quickly return unless countries such
as Spain and Greece maintain the pressure for reform, Frieden
said in an interview in Nicosia, Cyprus, Sept. 14 after a
meeting of European finance chiefs.

“It’s clear that a new element can come at any moment that
will ignite the crisis again,” Frieden said. “That’s why it’s
important to know as soon as possible, and the sooner the
better, in all the individual cases, Greece, Spain, what the
next steps are and there has to be intensive work on this.”

The comments underscore concerns that the calm in financial
markets since the European Central Bank unveiled its bond-buying
program could lull political leaders into a false sense of
security that undermines efforts to cut budget deficits and
boost economic growth.

The regulator asked the committee to impose a maximum fine
of 1.5 million euros against Exane, according to Les Echos.
Boussard has been cleared by the Paris court, the newspaper
said.

Courts

E-Book Publishers’ $69 Million Accord With States Approved

A U.S. judge granted preliminary approval to a $69 million
settlement between 49 states and three U.S. publishers over
alleged price fixing of electronic books.

U.S. District Judge Denise Cote in New York gave initial
approval to the accord with Hachette Book Group, HarperCollins
Publishers LLC and Simon & Schuster Inc. and all the states but
Minnesota.

The District of Columbia, U.S. Virgin Islands, Northern
Mariana Islands and Puerto Rico also joined in the settlement.

Hachette agreed to pay $31.7 million; HarperCollins, $19.6
million; and Simon & Schuster, $17.8 million, Cote said in an
order signed Sept. 13 and made public Sept. 14. The judge
scheduled a fairness hearing for Feb. 8.

The states sued alleging the publishers unlawfully agreed
to fix the prices of electronic books, violating U.S. antitrust
law.

In a separate case, the U.S. sued Apple Inc. and five
publishers in April, charging that they conspired to limit e-book price competition. Cote approved a settlement with
Hachette, HarperCollins and Simon & Schuster in that case
earlier this month, saying it was in the public interest.

The U.S. suit against Apple and the publishers Macmillan, a
unit of Verlagsgruppe Georg von Holtzbrinck GmbH, and Pearson
Plc’s Penguin Group remains in effect, according to a statement
by Texas.

The case is Texas v. Hachette Book Group Inc., 1:12-cv-06625, U.S. District Court, Southern District of New York
(Manhattan).